University of Kentucky Opens Door to Leaving Dorm Management

A rendering Education Realty Trust’s planned dorm at the University of Kentucky.

The University of Kentucky took a major first step Tuesday in its closely watched effort to transfer campus dorms to a private company.

The university’s Board of Trustees agreed to move forward with allowing Education Realty Trust Inc. to build and operate a new campus dormitory. The deal is expected to be finalized in coming weeks.

As we’ve reported, several colleges have entered into public-private partnerships in recent years to replace a portion of their student housing, but the University of Kentucky would be among the first major institutions to turn over all of its housing to a private real estate company. For that reason, and because it could be worth some $500 million, both Wall Street and academia are keeping tabs.

Education Realty eventually plans to upgrade and replace outdated student living spaces that have an average age of 44 years. (For the record, cinderblock towers and bunk beds bolted to the walls are out of fashion.) The deferred maintenance expense tops $200 million, money the school would rather put toward new classrooms and research space.

Construction of the first 600-bed dormitory could start in April with completion possible next year. According to a draft of the 78-page ground-lease, the rent can’t top $3,490 per bed per semester for the 2013-‘14 academic year — in line with current rents. (Student housing isn’t cheap!) To be sure, modest increases are expected. The university will receive a ‘residence life fee’ of $639 per bed.

According to the Lexington Herald-Leader, at least one trustee likes the potential deal. “It is a daunting challenge to sign a lease that protects us over a 75-year term, but I think they have done it,” Pam May is quoted as saying.

For a look at the deal’s specifics, click here.

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